Overview Of Australian Securities And Investment Commission (ASIC) And Australian Accounting Standards Board (AASB)

The role of Australian Securities and Investment Commission (ASIC) in regulating the financial sector in Australia

The Australian Securities and Investment Commission (ASIC) was formerly known as the Australian Securities and Exchange Commission. It is an independent government body that is charged with the responsibility of regulating the financial services sector and financial markets in Australia (ASIC, 2021, n.p).  Notably, commission was formulated in 1991 to act as the official regulating authority of corporate, markets, consumer credit, and financial services in Australia. Today, the commission has the general administration of the Corporations Act 2001, which is the chief legislation that governs the affairs of corporate entities within the country (Parliament of Australia, 2022, n.p). The commission is spearheaded by a chairperson and members that are tasked with the responsibility of establishing priorities for the regulation of Australian corporate entities, financial markets and service organization as well as professionals that work in the financial industry.

Imperatively, the ASIC has various statutory objectives and functions. Specifically, the institute oversees the registration of corporate entities and has the mandate to ensure that companies, directors, auditors, and other market participants fulfill their legal obligations as provisioned in the Act (Parliament of Australia, 2022, n.p). In addition, the organization acts as the licensing and regulatory body for businesses and individuals that provide consumer credit facilities (Australian Government, 2015). Also, due to its regulatory role, the commission is responsible for the supervision of financial market participants and operators.

It is also fundamental to note that the ASIC is tasked with the role of increasing investor confidence and trust in the market through regulating and improving the performance of the country’s financial system. In order to achieve this goal, the commission performs the following functions as well.  To begin with, the commission administers and enforces the laws efficiently and effectively to ensure compliance of the market participants to the rules and regulations provided in the Corporations Act 2001 (ASIC, 2021, n.p).  Secondly, the government body ensures that the processing and storage of financial market information is sone in a quick and efficient manner in order to ensure that investors and other stakeholders are well informed about the operations of the market (ASIC, 2021, n.p). This helps to enhance the level of accountability in the financial industry.

In addition, the ASIC promotes financial consumers’ and investors’ confidence and trust by educating them and the general public on investors rights and responsibilities. The commission holds the gatekeepers accountable for their actions. It also studies consumer behavior and analyses how investors and consumers make decisions (ASIC, 2021, n.p).   More so, it ensures that fairness and transparency prevail in the market by perfroming a significant role in market supervisory (ASIC, 2021, n.p). In addition, it also plays a major role in corporate governance. Overall, it can be argued that by undertaking these various roles in the financial industry, the commission is able to achieve a fair, efficient and string financial system for Australia.

The Australian Accounting Standards Board (AASB) is the government agency that is tasked with the responsibility of developing, issuing, and maintaining accounting standards within Australia. The accounting standards developed by the board are applicable under the Australian company law (AASB, 2021, n.p). Notably, the powers and functions of the board are set out in the Australian Securities Commission Act 2001 (AASB, 2021, n.p). Overall, the key aim of the board is to develop high-quality financial reporting standards for all sectors of the Australian economy (AASB, 2021, n.p).

Functions and objectives of ASIC and AASB

Just like the ASIC, the AASB has various functions and objectives. According to the Treasury (2021, p.1) the functions of the AASB pertain to the development and maintenance of high-quality accounting standards for all sectors of the Australian economy. These accounting standards are applied by organizations in the public, private and not-for profit sectors to prepare general purpose financial statements at the end of their financial year (Treasury, 2019, p.1). In compliance with the strategic direction from the Financial Reporting Council in 2002, the AASB adopts the International Financial Reporting Standards (IFRSs) and tailors them into Australian accounting standards (Treasury, 2019, p.1). Notably, this is an ongoing activity that necessitates the AASB to continuously asses every new IFRS that is issued by the International Accounting Standards Board (IASB) for adoption (Treasury, 2019, p.1).  This requirement guarantees that financial statement prepared by companies using the Australian accounting standards are simultaneously prepared in accordance with the IFRS requirements as well.

Furthermore, the AASB undertakes the function of developing a conceptual framework for the purpose of evaluating accounting standards and IFRSs. A conceptual framework refers to a system of objectives and ideas that are utilized in the development of a consistent set of rules and standards. It sets out the fundamental principles for financial reporting that guide the board in the process of developing standards (IFRS, 2022, n.p). Thus, by developing the conceptual framework, the AASB is able to develop consistent accounting standards that are applied within the country in financial reporting so that analogous transactions are treated in the same manner (IFRS, 2022, n.p). More so, the board has a responsibility to review the accounting standards at regular intervals and determine whether they should be revised or updated (Treasury, 2019, p.1). The government body is also tasked with providing interpretations and guidance to the accounting standards formulated.

 The International Accounting Standards Board (IASB) is the body that sets the international accounting standards, the IFRSs. Today, the IASB has the overall responsibility for preparing and issuing the IFRSs. The IFRSs were developed to help achieve one set of accounting standards that can be utilized globally in the preparation of financial statement. Generally, the board members are responsible for the creation as well as publication of IFRS Accounting Standards. It is also tasked with approving the interpretations of the IFRS standards as developed by the IFRC. 

Although the expectation is that IFRSs is applied globally, today, the IFRSs are applied in only 166 countries (IFRS, 2022, n.p).  Predominantly, this is due to the fact that the application of the IFRS set by the IASB is not compulsory for the members of the IASB. Mainly, this is due to the fact that member countries of IASB such as Argentina, Australia, America and other G20 nations prepare their national accounting standards by adopting the requirements and provisions of the IFRS (IAS Plus, 2021, n.p). This implies that by following the national accounting standards, companies would be preparing financial statements that are in compliance with the IFRSs (IAS Plus, 2021, n.p). For this reason, it is not compulsory for them to follow the IFRSs set by the IASB

Functions of the Australian Accounting Standards Board (AASB)

A proprietary is a firm of a private company in Australia that that is either limited or unlimited. The company operates according to the provisions of the Corporations Act 2002 that put restrictions on what they can and cannot do. For instance, the firm cannot have more than 50 shareholders, and cannot engage in fundraising that would necessitate a disclosure document like the prospectus. There are two main categories of proprietors, namely small proprietors and large proprietors (ASIC, 2022, n.p). The main distinction between the two lies on the size of the entities operations.

For an organization to be regarded as a large proprietary company, it must fulfill a minimum two of the following criteria. Firstly, it should have a consolidated revenue of $50 million or more. This consolidated revenue could be of the main company and the subsidiaries that the firm controls (ASIC, 2021, n.p). Secondly, the entity must have a consolidated gross asset value of over $25 million or more at the close of its financial year and any subsidiaries that the it controls (ASIC, 2021, n.p). Lastly, the organization any companies it controls should have at least 100 employees at the year-end. If a firm fulfills any two of these criteria, then it is categorized as a large proprietary company. However, if a firm fails to meet at least two of the criteria, it is classified as a small proprietary.

Noteworthy, there are various reporting implications for firms that are categorized as large proprietors. To begin with, large proprietary entities are required to prepare as well as lodge a financial report at the financial year end. In addition, the entity must prepare and publish a director’s report at the end of the financial year (ASIC, 2021, n.p). The financial statements must also be audited by an independent external auditor to ascertain their truthfulness unless the ASIC grants the company relief (ASIC, 2021, n.p). On the other hand, a small proprietary company is not obligated to prepare and lodge audited financial reports and directors reports (ASIC, 2021, n.p). However, under certain circumstances, they may be required to lodge financial reports.

On the other hand, reporting entities refers to those organization which must or chooses to prepare financial statement at the financial year-end. It is an entity where it is expected by its shareholders, investors, employees and stakeholders that it will prepare ad publish a general-purpose financial report at the yearend (Sylvia, 2018). As such, it is rational to expect that there are users who depend on on the company’s financial reports to make and gauge their financial decisions regarding the allocation of resources. Consequently, for that reason, such an entity has a legal obligation to prepare and publish their financial statements in order to provide the financial information to the interested parties.

A business combination refers to a transaction in which one company obtains control over another business. This report focuses on the Seven’s Group takeover of Boral and  the Santos and Oil Search Merger.

Seven’s Group holding limited (SHG) is a leading Australian investment company. The company also has leading performance in diversified operations within the country (Danckert, 2021, n.p). 

Development of high-quality accounting standards by AASB

How many business combinations did the company report?

The company reported two business combinations. It seized control over the operation of Boral by acquiring 69.6 percent stake in the company (SGH, 2022, p.1). Apart from Boral, the firm also acquired a 100 percent stake of Coates.

What was the fair value of consideration paid?

The fair value of consideration paid for Boral was $7.40 per share (Evans, 2021, n.p). The total consideration paid amounted to $9 billion (SGH, 2022, p.27).

What are the components of acquisition costs, e.g. cash consideration and noncash consideration?

During the acquisition, the company incurred acquisition costs of $3.4 million (SGH, 2022, p.94).

What are the components of acquisition costs, e.g. cash consideration and noncash consideration?

Predominantly, these costs were cash transactional costs associated with the purchase of the entity.

Recognised value of each class of assets, liabilities and contingent liabilities

The assets had a provisional fair value of 6,602.8 million (SGH, 2022, p.7).

Carrying value of each class of assets, liabilities and contingent liabilities

At the purchase date, the company acquired net assets with a book value of $4,128.7 million. The recognized value of the trade receivables was $496.9, inventories were $218.3, nest assets held for sale amounted to $3,015.8, investments were $15 million, property plant and equipment amounted to 1914.3 while intangible assets were 7.4 (SGH, 2022, p.7). On the other hand, the liabilities comprised of trade and other payables of 454.1 million, provisions of 234.6 million, derivatives of 21.6 million and net lease liabilities of 11.5 million (SGH, 2022, p.7).

How much goodwill or gain on bargain purchase has been recorded?

The reported goodwill at acquisition was $1,142.2 million (SGH, 2022, p.7).

Factors that contributed to the recognition of goodwill or gain on bargain purchase (if disclosed)

The factors that contributed to goodwill were not disclosed in the report

What was the amount of goodwill as percentage of total consideration paid?

Goodwill was 1.3 percent of the total consideration paid.

What was the amount identifiable intangible assets as a percentage of total consideration paid

Intangible assets amounted to 76 percent of the total assets acquired by the Seven’s Group (SGH, 2022, p.7).  

How many business combinations did the company report?

The business reported one business combination, the  merger between Santos and Oil Search.

What was the fair value of consideration paid?

The purchase consideration entailed a share for share exchange with the shareholders of Oil Search receiving 0.6257 new shares in Santos for every share they previously owned in Oil Search.

What are the components of acquisition costs, e.g. cash consideration and noncash consideration?

The company incurred acquisition costs of $2.1 million (Santos, 2022, p.34). Predominantly, these costs were cash transactional costs associated with the merging of the two companies.

What was the fair value of net identifiable assets acquired?

After the merger, the company had total net assets with a value of $5,6683 million (Santos, 2022, p.34).

(v) Recognised value of each class of assets, liabilities and contingent liabilities.

The recognized value of the trade receivables was $186 million, inventories were $131million, prepayments amounted to $20 million, cash and cash equivalents of 503 million, and derivative financial instruments of $1.302 million (Santos, 2022, p.34). The non-current assets comprised of financial assets of $78.654 million, exploration and evaluation assets, $2,788.228 million, oil and gas assets of $5,717.92 million.  On the other hand, the liabilities comprised of 454.1 million, provisions of $19,517, provisions of $698.646 million, borrowings of $2,556.546 million and deferred tax liabilities of $1,389.684 million (Santos, 2022, p.34).

Conceptual framework for evaluating accounting standards

How much goodwill or gain on bargain purchase has been recorded?

There was a total reported goodwill of $383 million (Santos, 2022, p.34). 

Factors that contributed to the recognition of goodwill or gain on bargain purchase (if disclosed)

The factors that contributed to goodwill were not disclosed in the report

What was the amount of goodwill as percentage of total consideration paid?

Goodwill was 2 percent of the total consideration paid.

What was the amount identifiable intangible assets as a percentage of total consideration paid

 Notably, the intangible assets amounted to 13 percent of the total assets acquired by the Seven’s Group (SGH, 2022, p.7).  

(xi) Write a comparative analysis on the two companies’ disclosure on business combination.

Given that the two companies had different business combinations, they reported their transactions using different approaches. Regardless, the businesses presented their financial statements using the IFRSs. The statements were clearly presented by both companies in a manner that is clear, easy to understand and comprehensive.

It is imperative to note that learning this unit this semester has been very enlightening. I have learned a lot of concepts and principles regarding financial reporting, accounting standards, and business combinations. In addition, I got the opportunity to learn more about the reporting entity concept and the implications attached to an organization being classified as a reporting entity. Imperatively, the course unit has equipped me with vast knowledge on the main types of reporting entities such companies and proprietaries. As a result of the lessons in this class, I am now well aware of corporate reporting, and disclosure requirements for different organizations. More so, going through the concepts of this unit has greatly developed my understanding of accounting standards and disclosure requirements for business combinations.

Moreover, the learning experience has been very educative with respect to equipping me with the skills and acumen to critically analyze and interpret the financial statements of different types of entities. Imperatively, financial reporting is a major part of the business world. Businesses prepare their financial statements at the close of every financial year to provide an summarised overview of their financial performance, and financial position. However, the information contained in the financial statements need to be analyzed and interpreted to obtain a deeper understanding of how the company has performed. For this reason, I believe that this unit has equipped me with a valuable skill that is going to go a long way in my future career in the financial industry.

In addition, it is worth noting that I intend to work in the accounting and financial reporting field once I graduate. In turn, this implies that I will be tasked with the responsibility of preparing financial statements and making various disclosures about the components of the company’s financial statements. This means that the lessons learnt in this course unit will play a critical role in ensuring that I prepare accurate financial statements and make the appropriate disclosures about the company’s overall performance as required by the Australian accounting standards.

Role of International Accounting Standards Board (IASB) in setting international accounting standards

Before taking this unit, I did not have a clear understanding of the reason why companies within Australia and other members nations of the IASB did not follow the IFRSs developed by the IASB in the preparation and presentation of financial reports. However, now I am aware of the reason why it is not mandatory for these nations to prepare and present their financial statements in accordance with the IFRS requirements. I am also well aware of the accounting standards applicable in the governance of companies as well as the requirements for financial reporting.  Indeed, this unit has played an important role in shaping my understanding of the overall financial reporting standards and disclosure requirements.

Conclusion

 All in all, the ASIC oversees the registration of corporate entities and has the mandate to ensure that companies, directors, auditors, and other market participants fulfill their legal obligations as provisioned in the Act. In addition, the organization acts as the licensing and regulatory body for businesses and individuals that provide consumer credit facilities. On the other hand, the (AASB is tasked with developing, issuing, and maintaining accounting standards within Australia. Although the expectation is that IFRSs are applied globally, the application of the IFRS set by the IASB is not compulsory for the members of the IASB. Mainly, this is due to the fact that member countries of IASB prepare their national accounting standards by adopting the requirements and provisions of the IFRS. Therefore, by using their national accounting standards, they are in compliance with the IFRSs as well and therefore need not follow the IFRSs.

Reference List

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